Whole Foods Prevails:
Will 'Operation Goldmine' now follow?
Whole Foods has been cleared to commence "Operation Goldmine." That's good news for the large organic-foods grocer, but the outlook is a bit gloomier for consumers.This year, the U.S. Federal Trade Commission asked the courts to prevent the proposed $565 million merger of Whole Foods and Wild Oats. The FTC contends that the merger would violate antitrust laws, leaving consumers likely to see higher prices, lower quality and less selection.
On Thursday, a judge declined to block the merger, though the public does not yet know why. Because the ruling reportedly mentions trade secrets, it will be censored before being released.
As it happens, though, the public has glimpsed some of those trade secrets, some of which are not terribly palatable. Because of botched attempts to censor documents in the FTC proceeding, for instance, we learned that Whole Foods had hatched a plan to close about 30 of Wild Oats' 110 stores after the merger. That plan was called "Operation Goldmine." How subtle.
Whole Foods, we learned, had been planning to "crush" its competitor's new (but as-yet unopened) flagship store in Boulder's Twenty Ninth Street mall. Whole Foods' strategy was to greatly enlarge its Boulder store and slash prices.
Consumers also learned that Whole Foods CEO John Mackey emulates a loose cannon. In more than 1,000 online postings under the pseudonym "rahodeb" (an anogram of Deborah, which is his wife's name), Mackey excoriated Whole Foods' weaker rival.
While posing as "rahodeb," Mackey also prattled about himself, calling himself "cute" and adding: "I like his haircut."
When he spoke to his Whole Foods colleagues under his true identity, the FTC revealed, Mackey was only marginally less bizarre. He said that buying Wild Oats would "avoid nasty price wars in Portland (both Oregon and Maine), Boulder, Nashville and several other cities, which will harm our gross margins and profitability."
Mackey told his company that buying Wild Oats would "eliminate forever" the possibility that a major mainstream grocer could launch a rival natural/organic chain. It's no mystery why the FTC took an interest in this.
But unearthing a CEO's megalomania does not demonstrate a violation of federal antitrust law. And though the judge's reasoning is secret for now, some cogent analyses have poked holes in the FTC's case. Slate.com's Daniel Gross, for instance, has argued persuasively that Whole Foods and Wild Oats are not head-to-head competitors in many areas.
Whole Foods has four stores in Manhattan, while Wild Oats lacks a single store in the state of New York, Gross noted. In Washington, D.C., Virginia and Maryland, the store tally is 18-0 in Whole Foods' favor.
Gross also cites a "canard" in the FTC's argument, the contention that after the merger, Whole Foods would be able to raise prices. "But even with Wild Oats - and a gazillion other competitors - in the marketplace, Whole Foods has managed to do a pretty good job of doing that."
And in markets like Boulder - with diminishing competition in the natural-foods market - the larger grocer may well do an even better job of raising prices. The judge says that does not constitute a violation of antitrust law. But that doesn't make this a victory for consumers.
Clint Talbott, for the editorial board
© 2007 the Daily Camera